FONKOZE S.A. AND SUBSIDIARY PORT AU PRINCE, HAITI * * * * * AUDITED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT FOR THE YEARS ENDED

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1 PORT AU PRINCE, HAITI * * * * * AUDITED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT FOR THE YEARS ENDED

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Consolidated Balance Sheets 2 Consolidated Statements of Income and Accumulated Deficit 3-4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Changes in Equity 6 Consolidated Statements of Cash Flows 7 Notes to Financial Statements 8-24 SUPPLEMENTAL INFORMATION Independent Auditor's Report on Supplementary Information 25 Consolidating Balance Sheets Expressed in Haitian Gourdes Consolidating Statements of Income and Accumulated Deficit in Haitian Gourdes Consolidating Balance Sheets Expressed in U.S. Dollars Consolidating Statements of Income and Accumulated Deficit in U.S. Dollars 32-33

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors Fonkoze S.A. and Subsidiary Port Au Prince, Haiti We have audited the accompanying consolidated financial statements of Fonkoze S.A. (a Haitian Corporation) and Subsidiary, which comprise the consolidated balance sheets as of September 30, 2014 and 2013, and the related consolidated statements of income and accumulated deficit, comprehensive income, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we pla n and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes e valuating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall pre sentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fonkoze S.A. and Subsidiary as of September 30, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Craft, Noble & Company, PLLC Craft, Noble & Company, PLLC Richmond, KY January 1, 2015

4 CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2014 SEPTEMBER 30, 2013 ASSETS CURRENT ASSETS Cash and cash equivalents HTG 343,702,890 HTG 337,382,347 Loans 498,975, ,656,217 Less allowance for loan losses (14,437,655) (28,726,746) Net loans 484,537, ,929,471 Interest receivable on loans 16,859,218 14,910,061 Accounts receivable 41,931,480 39,856,374 Stock subscriptions receivable 5,491 87,515,000 Prepaid expenses 8,270,034 9,830,240 Inventory 3,023,645 2,873,352 TOTAL CURRENT ASSETS 898,330, ,296,845 INVESTM ENTS 30,948,676 72,129,436 FIXED ASSETS 252,700, ,469,146 Accumulated depreciation and amortization (99,221,785) (132,701,479) Fixed assets, net 153,478, ,767,667 NOTES RECEIVABLE - RELATED PARTIES 165,744, ,520,223 OTHER ASSETS 39,820,860 55,881,091 TOTAL ASSETS HTG 1,288,322,530 HTG 1,370,595,262 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Deposits HTG 1,134,267,402 HTG 1,189,566,739 Long-term subordinated notes - current portion 3,271,043 3,140,740 Other notes payable - current portion 86,792,940 64,861,465 Other current liabilities 69,181,214 77,598,953 TOTAL CURRENT LIABILITIES 1,293,512,599 1,335,167,897 NOTES PAYABLE Other non-current liabilities 455, ,429 Long-term subordinated notes, less current portion 9,904,244 11,180,685 Other notes payable, less current portion 99,419,125 89,775,739 TOTAL LIABILITIES 1,403,291,545 1,436,561,750 SHAREHOLDERS' EQUITY Capital stock - HTG 25 par value Common - 8,048,067 shares authorized; 5,286,171 shares issued 132,170, ,166,598 Preferred - 2,500,000 shares authorized; 1,780,191 shares issued 44,504,775 39,504,775 Additional paid in capital 181,950, ,041,728 Retained earnings (deficit) (477,416,296) (406,091,298) Accumulated other comprehensive gain (loss) 3,821,765 3,411,709 TOTAL SHAREHOLDERS' EQUITY (114,969,015) (65,966,488) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY HTG 1,288,322,530 HTG 1,370,595,262 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2

5 CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT FOR THE YEARS ENDED SEPTEM BER 30, 2014 AND 2013 YEAR ENDED YEAR ENDED SEPTEMBER 30, 2014 SEPTEMBER 30, 2013 INTEREST INCOME Loans HTG 247,808,935 HTG 229,559,425 Other 363, ,993 TOTAL INTEREST INCOME 248,172, ,695,418 INTEREST EXPENSE Deposits 4,522,371 12,844,830 Debt 7,129,443 6,631,900 TOTAL INTEREST EXPENSE 11,651,814 19,476,730 NET INTEREST INCOM E 236,520, ,218,688 Provisions for loan losses 23,239,158 62,629,719 NET INTEREST INCOME AFTER PROVISIONS FOR LOAN LOSSES 213,281, ,588,969 OTHER OPERATING INCOME (EXPENSE) M embership dues 3,454,970 3,883,932 Income from currency exchange 28,454,941 38,896,063 Income from remittance services 20,750,265 20,046,063 Recoveries of loans written off 9,551,724 4,763,403 Savings account fees 17,800,920 16,138,443 Other 6,848,727 12,268,263 NET INTEREST INCOM E AND OTHER INCOM E 300,142, ,585,136 OPERATING EXPENSES Salaries and benefits 181,820, ,664,236 Premises and equipment expenses 62,527,804 59,240,645 Depreciation and amortization 17,967,014 19,582,516 Other expenses 79,819,288 52,010,011 TOTAL OPERATING EXPENSE 342,134, ,497,408 NET LOSS FROM OPERATIONS BEFORE INCOME TAX (41,992,107) (101,912,272) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3

6 CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT (CONTINUED) FOR THE YEARS ENDED SEPTEM BER 30, 2014 AND 2013 YEAR ENDED YEAR ENDED SEPTEMBER 30, 2014 SEPTEMBER 30, 2013 OTHER INCOME (EXPENSE) Gain (loss) due to revaluation HTG (9,711,220) HTG (19,208,734) Loss on revaluation of MiCRO investment (44,559,696) - Operating grants 45,608,313 89,351,497 Non-operating income 4,432,235 3,127,480 M icro Insurance Ti M achann (4,331,077) (10,579,109) Parametric and basis risk payouts received from M icro - 182,699,966 Catastrophe insurance premiums (17,780,526) (43,931,678) Kore W catastrophic insurance expenses (80,920) (134,373,809) NET LOSS BEFORE TAX (68,414,998) (34,826,659) PROVISION FOR INCOME TAX (2,910,000) (546,259) NET INCOME (LOSS) (71,324,998) (35,372,918) RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR (406,091,298) (370,718,380) RETAINED EARNINGS (DEFICIT) AT END OF YEAR HTG (477,416,296) HTG (406,091,298) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4

7 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2014 SEPTEMBER 30, 2013 NET INCOM E (LOSS) HTG (71,324,998) HTG (35,372,918) Other comprehensive income before tax: Unrealized gains on securities: available for sale Unrealized holding gains arising during the period 410, ,466 Other comprehensive income 410, ,466 COM PREHENSIVE INCOM E (LOSS) HTG (70,914,942) HTG (34,764,452) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5

8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Common stock Preferred stock Additional paid in capital Retained earnings (deficit) Accumulated other comprehensive gain (loss) Total Equity Balance as of September 30, 2012 HTG 81,056,599 HTG 34,114,775 HTG 109,599,594 HTG (370,718,380) HTG 2,803,243 HTG (143,144,169) Net loss for the period (35,372,918) - (35,372,918) Comprehensive gain on investment in SNI Minoterie (405,258) (405,258) Comprehensive gain on investment in MiCRO ,013,724 1,013,724 Issue 1,844,400 shares of common stock (HTG 25 par value) 46,109,999-53,022, ,132,477 Issue 215,600 shares of preferred stock (HTG 25 par value) - 5,390,000 7,419, ,809,656 Balance as of September 30, ,166,598 39,504, ,041,728 (406,091,298) 3,411,709 (65,966,488) Net loss for the period (71,324,998) - (71,324,998) Comprehensive gain on investment in SNI Minoterie , ,056 Comprehensive gain on investment in MiCRO Issue 200,154 shares of common stock (HTG 25 par value) 5,003,842-5,956, ,960,415 Issue 200,000 shares of preferred stock (HTG 25 par value) - 5,000,000 5,952, ,952,000 Balance as of September 30, 2014 HTG 132,170,440 HTG 44,504,775 HTG 181,950,301 HTG (477,416,296) HTG 3,821,765 HTG (114,969,015) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 6

9 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEM BER 30, 2014 AND 2013 YEAR ENDED YEAR ENDED SEPTEMBER 30, 2014 SEPTEM BER 30, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) HTG (71,324,998) HTG (35,372,918) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17,967,014 19,582,516 Provision for loan losses 23,239,158 62,629,719 Provision for income tax 2,910, ,259 Change in investments and debt due to exchange rate fluctuations 47,195,897 2,583,106 (Increase) decrease in: Interest receivable on loans (1,949,157) 2,542,951 Accounts receivable (2,075,106) 39,722,952 Stock subscriptions receivable 87,509,509 (78,982,844) Prepaid expenses 1,560, ,312 Inventory (150,293) (966,012) Notes receivable - related parties 8,775,900 (49,260,008) Other assets 13,150,231 (1,363,440) Increase (decrease) in: Other current liabilities (8,417,739) (63,615,745) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 118,390,622 (101,814,152) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (43,677,794) (37,588,985) Purchase of investments (132,554) (30,068,565) (Increase) decrease in loans (59,847,153) (40,361,917) NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (103,657,501) (108,019,467) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowing 37,796,610 69,272,445 Payments on debt (12,822,266) (43,230,376) Additional capital investments 21,912, ,942,133 Increase (decrease) in deposits (55,299,337) 91,681,790 NET CASH FROM FINANCING ACTIVITIES (8,412,578) 229,665,992 NET INCREASE (DECREASE) IN CASH 6,320,543 19,832,373 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 337,382, ,549,974 CASH AND CASH EQUIVALENTS AT END OF YEAR HTG 343,702,890 HTG 337,382,347 SUPPLEM ENTAL DISCLOSURES: Cash paid during the year for interest HTG 29,742,232 HTG 2,089,587 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7

10 NOTES TO FINANCIAL STATEMENTS NOTE A NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Business Purpose Fonkoze S.A. is a holding company incorporated on February 25, 2002, under the laws of the Republic of Haiti as published in Le Moniteur number 49 dated June 24, It was established to facilitate the creation of Sèv is Finansye Fonkoze, S.A. and owns % of that entity. Sèvis Finansye Fonkoze, S.A. is a financial services company incorporated on May 14, 2004, under the laws of the Republic of Haiti as published in Le Moniteur number 56 dated August 26, It was established to provide capital and a full range of financial and technical services to peasant organizations, womens collectives, cooperatives, credit unions and street vendors. Principles of Consolidation The consolidated financial statements include the accounts of Fonkoze S.A. and its % owned subsidiary, Sèvis Finansye Fonkoze, S.A. All material intercompany transactions and balances have been eliminated in consolidation. Accounting Principles The accompanying balance sheets and statements of income, retained earnings and cash flows were prepared using accounting principles generally accepted in the United States and the accrual method of accounting. In accordance with this method of accounting, revenues are recognized in the period in which they are earned and expenses are recognized in the period in which they are incurred. All revenue and expenses which are applicable to future periods have been presented as deferred or prepaid on the accompanying balance sheets. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Investments Investments are composed of certificates of deposit, an investment in SNI Minoterie, S.A., an agricultural processing company, and an investment in MiCRO, a (re)insurance company. Certificates of deposit are recorded at market value. Management has classified marketable securities as available for sale for reporting purposes under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320 (formerly FASB 115). Loans Loans are stated at book value, net of the allowance for loan losses. In general, impaired loans are those for which payments are past due more than 180 days. Loans scheduled to be paid in one payment (i.e. balloon payment loans) or shorter periods (Ti Kredi loans) are considered impaired when payments are past due more than 90 days. The Company recognized interest income on an accrual basis. During the year ende d September 30, 2014 the Company changed its policy for discontinuing accrual of interest on past due loans as shown below. Previously, the Company discontinued accruing interest for all loans when a loan became more than 30 days past due. Ti Kredi & Solidarity Business Development & SME More than 29 days past due More than 89 days past due 8

11 NOTES TO FINANCIAL STATEMENTS NOTE A NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During the year ended September 30, 2014 the Company also changed its specific rates of provision policy taking into consideration industry standards for microfinance, generally accepted accounting principles and proposed regulation for microfinance by Banque de la République d Haïti (Haiti s central bank) as shown below. September 30, 2014 September 30, 2013 Current loans 0% 0% 1 30 days past due 5% 8.5% days past due 25% 25.5% days past due 50% 25.5% days past due 75% 51% More than 180 days past due 100% 85% During the year ended September 30, 2014 the Company also changed its specific rates of provision policy for loans scheduled to be paid in one payment (i.e. balloon payment loans) or shorter periods (Ti Kreki Loans) as follows: September 30, 2014 September 30, 2013 Current loans 0% 0% 1 15 days past due 5% 8.5% days past due 25% 8.5% days past due 50% 25.5% days past due 75% 25.5% days past due 75% 25.5% days past due 100% 51% More than 180 days past due 100% 85% For the year ended September 30, 2014 the rates of provision apply to the outstanding balance of the debt, which is equal to the outstanding loan after (i) deduction of any deposits of guarantee (cash collateral) made to the Company by the debtor net of overdue and accrued interest amounts, and/or (ii) deduction of any third-party loan guarantees provided that the third-party guarantee is deemed fully collectible. Previously, specific rates of provision were based on the recommendations of ACCION (a network of microfinance institutions) in its CAMEL rating adjusted by 15% for the mandatory cash collateral. Fixed Assets It is the Company s policy to capitalize property and equipment with a cost of more than USD 500. Lesse r amounts are expensed. Property and equipment are capitalized at cost. Property and equipment are depreciated using the straight-line method over their estimated useful lives as follows: Vehicles Equipment Computers Leasehold improvements Buildings Head Office 4 years 5 years 5 years 5 years 20 years 50 years 9

12 NOTES TO FINANCIAL STATEMENTS NOTE A NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents For purposes of the statement of cash flows, cash equivalents include savings accounts and all certificates of deposit with a maturity date of 90 days or less from the financial statement date. Conversion in Foreign Currencies The functional currency of the Companies is the Haitian gourde (HTG). Consequently, assets and liabilities stated in foreign currencies are converted in Haitian gourdes at the exchange rate prevailing at year-end. The official rates of exchange published by the Bank de la République d Haïti (Haiti s central bank) as of September 30, 2014 and 2013 were and Haitian gourdes to one U.S. dollar, respectively. Transactions incurred in U.S. dollars are converted at the exchange rate prevailing on the date of the transaction. Gains or losses related to exchange operations are reported in the statements of income and accumulated deficit. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. FASB ASC , Income Taxes (formerly FIN 48, Accounting for Uncertainty in Income Taxes), requires entities to disclose known or anticipated positions of income tax uncertainty. The company is not aware of any uncertain tax positions that may affect the financial statements as of January 1, Comprehensive Income FASB ASC 220, Comprehensive Income (formerly SFAS No. 130, Reporting Comprehensive Income (Loss)), requires the reporting of comprehensive income in addition to net income from operations. C omprehensive income is a mo re inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Accumulated other comprehensive gains (losses) shown on the balance sheets at September 30, 2014 and 2013 represent unrealized gains (losses) on available-for-sale securities. NOTE B CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following: September 30, 2014 September 30, 2013 Currency held in branch offices HTG 102,374,550 HTG 117,154,843 Deposits held in U.S. banks 55,762,806 91,763,141 Deposits held in Haitian banks 185,565, ,464,363 Total HTG 343,702,890 HTG 337,382,347 Currency in U.S. dollars HTG 27,917,560 HTG 37,589,575 Currency in Haitian gourdes 74,456,990 79,565,268 Deposits in U.S. dollars 187,640, ,898,777 Deposits in Haitian gourdes 53,687,789 58,328,727 Total HTG 343,702,890 HTG 337,382,347 10

13 NOTE B CASH AND CASH EQUIVALENTS (CONTINUED) FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS There is no deposit insurance for accounts held in Haitian banks. Deposits held with City National Bank of New Jersey are insured by the Federal Deposit Insurance Corporation (FDIC) up to USD 250,000. Deposits held with the Self Help Credit Union are insured by the National Credit Union Administration (NCUA) up to USD 250,000. NOTE C INVESTMENTS Investments consisted of the following: September 30, 2014 September 30, 2013 SNI Minoterie HTG 4,174,334 HTG 3,764,279 Certificate of Deposit Self Help Credit Union 7,641,191 7,209,528 Microinsurance Catastrophic Risk Organization (MiCRO) 19,133,151 61,155,629 Total HTG 30,948,676 HTG 72,129,436 The investment in SNI Minoterie represents a.62% interest in the company, which operates an agricultural processing business. The company was incorporated in the Cayman Islands and has been valued at its market value at September 30, 2014 and The certificate of deposit held at Self Help Credit Union matures May 12, 2017 and carries an interest rate of 1.75%. The investment in MiCRO represents a 76.69% interest in the preferred shares of Cell A of MiCRO, which operates as a lice nsed (re)insurance company that issues (re)insurance protections for catastrophic events (See Note Q). The company does not control this investment, and, accordingly, at September 30, 2013, it was valued at cost without impairment. During 2014, MiCRO substantially reorganized and changed its strategy; except for the parametric insurance product it offers the company, MiCRO is no longer actively marketing any insurance products in Haiti. Accordingly, at September 30, 2014, the Company recorded as Other Income (Expense) a loss of HTG 44,559,696 on revaluation of the MiCRO investment. The book value of the company s investment in Cell A of MiCRO is equal to its pro rata share of the MiCRO Cell A equity at September 30, On December 28, 2012, Fondasyon Kole Zepòl transferred 684,535 preferred shares of Cell A to Sèvis Finansye Fonkoze, S.A. Fair Value Measurements FASB issued FASB ASC 820, Fair Value Measurements and Disclosures in order to establish a single definition of fair value and a framework for measuring fair value in Ge nerally Accepted Accounting Principles (GAAP) t hat is in tended to result in increased consistency and comparability in fair value measurements. FASB ASC 820 also expands disclosures about fair value measurements. FASB ASC 820 applies whenever other authoritative literature requires (or permits) certain assets or liabilities to be measured for fair value, but does not expand the use of fair value. FASB ASC 820 defines fair value as the exchange price that would be received on the measurement date to sell a n asset or the price paid to transfer a liab ility in the principal or most advantageous market available to the entity in an orderly transaction between participants. FASB ASC 820 also establishes a three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities. 11

14 NOTE C INVESTMENTS (CONTINUED) FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS Level 1 Asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities. Level 2 Asset and liability fair values are based on observable inputs that include quoted market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the assets and liabilities. Level 2 assets and liabilities include certificates of deposit. Level 3 Assets and liabilities are fin ancial instruments whose value is calculated by th e use of pricing models and/or discounted cash flow methodologies, as well as fi nancial instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data. Fair value of assets and liabilities measured on a recurring basis at September 30, 2014 and 2013 are as follows: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair value September 30, 2014 Available-for-sale securities HTG 23,307,485 HTG - HTG - HTG 23,307,485 Certificate of deposit 7,641,191-7,641,191 - Total HTG 30,948,676 HTG - HTG 7, HTG 23,307,485 September 30, 2013 Available-for-sale securities HTG 64,919,908 HTG - HTG - HTG 64,919,908 Certificate of deposit 7,209,528-7,209,528 - Total HTG 72,129,436 HTG - HTG 7,209,528 HTG 64,919,908 Available-for-sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): SNI Minoterie MiCRO September 30, 2012 HTG 3,863,359 HTG 30,198,365 Purchases - 29,943,540 Total gains and losses unrealized Included in earnings (revaluation) - - Included in other comprehensive income (99,080) 1,013,724 September 30, ,764,279 61,155,629 Purchases - - Total gains and losses unrealized Included in earnings (revaluation) - (42,022,478) Included in other comprehensive income 410,055 - September 30, 2014 HTG 4,174,334 HTG 19,133,151 Investments, including SNI Minoterie, have been valued using a market approach. Fair values are determined by reference to quoted market prices and other relevant information generated by market transactions. The only change in the valuation techniques during the year ended September 30, 2014 and 2013 was the change from valuing the MiCRO investment at cost to book value. 12

15 NOTE D RELATED PARTY TRANSACTIONS FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS Over a period of ten years, Fondasyon Kole Zepòl (Fonkoze) became indebted to Sèvis Finansye Fonkoze, S.A. for expenditures related to setting up and maintaining the Fonkoze family branch network. As a result, Fonkoze owed the Company HTG 165,744,323 and HTG 174,520,223 at September 30, 2014 and 2013, respectively. In October 2012, the final six branches were transferred from Fonkoze to Sèvis Finansye Fonkoze, S.A. Following that change, which effectively ended any further increase in the Fonkoze receivable, Fonkoze was granted ten years to repay their debt, as evidenced by a signed promissory note. The note bears a zero percent interest rate. As of September 30, 2012, the receivable has been reclassified from accounts receivable to notes receivable related parties on the accompanying balance sheets. In October 2013, Digicel Haiti International Finance invested 2,000,000 USD in Sèvis Finansye Fonkoze, S.A receiving 1,600,000 voting shares in the entity. Management of Sèvis Finansye Fonkoze, S.A. decided to report Digicel as a related party. During the year ended September 30, 2014 this related party relationship resulted in revenue totaling HTG 412,874 to Sèvis Finansye Fonkoze, S.A. NOTE E LOANS The composition of loans by segment is as follows: September 30, 2014 September 30, 2013 Market vendor solidarity groups HTG 400,374,010 HTG 385,287,058 SME portfolio 57,801,289 55,032,145 Business development 40,799,822 36,337,014 Less allowance for loan losses (14,437,655) (28,726,746) Total HTG 484,537,466 HTG 447,929,471 The terms of the loans are between one and twelve months. Interest rates vary between twenty-four and sixty percent per annum. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are included in other operating income on the statements of income and accumulated deficit. The allowance for loan losses is evaluated on a regular basis by management and is based upon management s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The following are the factors the Company uses to determine the balance of the allowance account for each segment or class of loans. Solidarity Groups and Business Development Loans During the year ended September 30, 2014 the Company changed its specific rates of provision policy taking into consideration industry standards for microfinance, generally accepted accounting principles and proposed regulation for microfinance by Banque de la République d Haïti (Haiti s central bank). This factor has been applied based on the outstanding balance of the loan, net of mandatory cash collateral, as adjusted, and/or deduction of any third-party loan guarantees provided that such guarantee is deemed fully collectible. See Note A to these financial statements for updated policy rates. In 2012, the Company reduced the cash collateral requirement on solidarity loans to 13% to offset the catastrophic insurance premium of 2% charged to clients. No corresponding change was made to the specific rates of provision to loans. 13

16 NOTES TO FINANCIAL STATEMENTS NOTE E LOANS (CONTINUED) SME (Small and Medium Enterprises) Portfolio During the fiscal year ended September 30, 2013, the Company scaled back lending in the SME sector. During the period, the Company also introduced a more traditional SME loan product with monthly repayments and discontinued the Kredi Cho and Kredi Lakay products. SME loans in the amount of HTG 13,871,992 and HTG 61,949,980 were written off i n 2014 and 2013 respectively. The Company uses the CAMEL ratings to apply provisions to the SME loan product. In 2012, SFF began receiving funds from the Spain-IIC Haiti SME De velopment Fund to support SME lending. Under the Master Agreement for a Revolving Credit Facility and Proportional Risk Allocation for Financing of Small and Medium Enterprises in Haiti dated February 24, 2012 between Sèvis Finansye Fonkoze, S.A. and the Inter-American Investment Corporation (the IIC ), forty percent of the outstanding balance of eligible subloans are guaranteed by the IIC. All SME loans in the amount of USD 10,000 or more (or the equivalent in Gourdes) are submitted for coverage under the Agreement. Kredi Kolera Loans During the fiscal year ended September 30, 2013, the Company wrote off the remaining balances of the Kredi Kolera loans in the amount of HTG 2,719,975. The Company does not intend to issue any new Kredi Kolera loans. Loans by Segment The total allowance reflects management s estimate of loan losses inherent in the loan portfolio at the balance sheet dates. The Company considers the allowances for loan losses of HTG 14,437,655 and HTG 28,726,746 adequate to cover loan losses inherent in the loan portfolio at September 30, 2014 and 2013, respectively. The following tables present by portfolio segment, the changes in allowance for loan losses. Allowance for Loan Losses For the Year Ended September 30, 2014 Solidarity Business Development SME Portfolio Kredi Kolera Beginning Balance HTG 21,540,218 HTG 2,242,608 HTG 4,943,920 HTG - HTG 28,726,746 Provisions 5,783,854 5,539,593 11,915,711-23,239,158 Write-offs (18,880,214) (4,776,043) (13,871,992) - (37,528,249) Total Ending Balance HTG 8,443,858 HTG 3,006,158 HTG 2,987,639 HTG - HTG 14,437,655 Allowance for Loan Losses For the Year Ended September 30, 2013 Solidarity Business Development SME Portfolio Kredi Kolera Beginning Balance HTG 21,270,321 HTG 4,016,561 HTG 28,814,462 HTG 2,719,975 HTG 56,821,319 Provisions 16,507,947 8,042,333 38,079,439-62,629,719 Write-offs (16,238,050) (9,816,287) (61,949,980) (2,719,975) (90,724,292) Total Ending Balance HTG 21,540,218 HTG 2,242,607 HTG 4,943,921 HTG - HTG 28,726,746 14

17 NOTES TO FINANCIAL STATEMENTS NOTE E LOANS (CONTINUED) All loans are individually evaluated for impairment rather than collectively evaluated. Loans in the amount of HTG 37,528,249 and HTG 90,724,292 were written off in 2014 and 2013, respectively. Recoveries of loans previously written off were HTG 9,551,724 and HTG 4,763,420 for 2014 and 2013, respectively. Recoveries are included in other operating income on the statements of income and accumulated deficit. Accrued interest receivable on loans was HTG 16,859,218 and HTG 14,910,061 at September 30, 2014 and 2013, respectively. CREDIT QUALITY INFORMATION The intent of the credit application and review process is to manage the credit risk of the institution and to ensure that clients are ready for credit and do not become over-indebted. There are no formal credit bureaus in Haiti. The Company uses a loan application which provides necessary information about the client, her business, and other information necessary for the lending decision. The credit agent, the client s groups, and the branch managers also utilize contextual information about the client and her business to make the final lending decision. Past repayment history is an important factor in determining the amount of the loan. Clients who have unpaid loans may not take a new loan. Debt rescheduling (restructuring) is pursued as the final solution to settling existing or anticipated delinquency, including but not limited to the following cases: Clients with severe health conditions Clients whose business becomes subject to extreme, unforeseen damage, such as shop burning, natural catastrophes, economic changes, and mortality In rescheduling cases, the rescheduled amount will equal the total accumulated loan obligations consisting of penalties, overdue service charges, and the overdue principle amounts. Loans are considered for rescheduling on a case-by-case basis. Loan rescheduling requests are processed by the respective branch/department and are approved by the credit committee and the CEO. AGING ANALYSIS OF PAST DUE LOANS BY CLASS The following table shows an aging analysis of the recorded investment of past due loans net of cash collateral as of September 30, Outstanding Loans, net of Cash Collateral Market vendor solidarity groups SME portfolio Business development Total 1-30 Days Past Due HTG 52,352,894 HTG 6,499,834 HTG 6,915,381 HTG 65,768, Days Past Due 5,476, ,867 2,599,126 8,893, Days Past Due 2,192,522-1,624,242 3,816, Days Past Due 4,277,782 3,667,698 3,023,020 10,968,500 Greater Than 180 Days Past Due 5, ,236 Total Past Due 64,304,849 10,985,399 14,161,769 89,452,017 Current Net of Cash Collateral 276,258,094 37,021,497 18,666, ,946,230 Cash Collateral 60,932,958 11,040,951 7,971,414 79,945,323 Less Drawdown Accounts (1,121,891) (1,246,558) - (2,368,449) Total Loans HTG 400,374,010 HTG 57,801,289 HTG 40,799,822 HTG 498,975,121 15

18 NOTES TO FINANCIAL STATEMENTS NOTE E LOANS (CONTINUED) The following table shows an aging analysis of the recorded investment of past due loans as of September 30, Market vendor solidarity groups SME portfolio Business development Total 1-30 Days Past Due HTG 64,155,005 HTG 2,666,095 HTG 6,436,399 HTG 73,257, Days Past Due 13,416,324 3,406,770 1,849,070 18,672, Days Past Due 13,306,720 8,709,789 1,507,703 23,524,212 Greater Than 180 Days Past Due 6,917, ,379 7,452,382 Total Past Due 97,795,052 14,782,654 10,328, ,906,257 Current 289,199,783 41,751,573 26,008, ,959,819 Collateral Less Drawdown Accounts (1,707,777) (1,502,082) - (3,209,859) Total Loans HTG 385,287,058 HTG 55,032,145 HTG 36,337,014 HTG 476,656,217 IMPAIRED LOANS At September 30, 2014 and 2013, loans in the amounts of HTG 5,236 and HTG 7,452,382, respectively, were impaired. These loans have been valued at the fair market value of their collateral. After consideration of collateral, the allowance for loan losses on impaired loans for the years ended September 30, 2014 and 2013, were HTG 5,236 and HTG 6,334,480, respectively. The following table includes the loans that were considered impaired as of September 30, 2014 and The balances are presented by class of loan. Impaired Loans For the Years Ended September 30, 2014 and 2013 September 30, 2014 September 30, 2013 Market vendor solidarity groups HTG 5,236 HTG 6,917,003 SME portfolio - - Business development - 535,379 Total HTG 5,236 HTG 7,452,382 16

19 NOTES TO FINANCIAL STATEMENTS NOTE E LOANS (CONTINUED) NONACCRUAL LOANS The following table presents the loans on nonaccrual status as of September 30, 2014 and The balances are presented by class of loan. Nonaccrual Loans For the Years Ended September 30, 2014 and 2013 September 30, 2014 September 30, 2013 Market vendor solidarity groups HTG 11,951,955 HTG 33,640,047 SME portfolio 3,667,698 12,116,559 Business development 3,023,020 3,892,152 Total HTG 18,642,673 HTG 49,648,758 NOTE F FIXED ASSETS A summary of property and equipment and the related depreciation expenses is as follows: September 30, 2014 September 30, 2013 Land HTG 20,830,775 HTG 20,830,775 Buildings 93,502,816 4,422,000 Vehicles 38,373,473 38,725,470 Furniture and equipment 13,776,811 14,674,232 Computer equipment 18,372,375 45,528,028 Electrical equipment 31,387,306 24,651,174 Leasehold improvements 21,464,459 18,430,494 Non-tangible assets 14,013,514 19,474,232 Construction in progress 978,703 73,732,741 Total 252,700, ,469,146 Accumulated depreciation 96,497, ,194,581 Accumulated amortization 2,723,849 13,506,898 Net Property and Equipment HTG 153,478,447 HTG 127,767,667 During the year ended December 31, 2010, the Company purchased land for construction of a new Central Office building. Construction began during As of September 2014, the Organization is using the building as their central office with the first floor being rented to Fondasyon Kole Zepòl (Fonkoze). 17

20 NOTES TO FINANCIAL STATEMENTS NOTE G OTHER ASSETS Other assets consisted of the following at September 30, 2014 and 2013: September 30, 2014 September 30, 2013 Guaranteed deposits HTG 2,747,857 HTG 16,733,646 Deferred tax asset 20,490,000 23,400,000 Land settlement 16,583,003 15,747,445 Total HTG 39,820,860 HTG 55,881,091 Guaranteed deposits at September 30, 2014 and 2013 were HTG 2,747,857 and HTG 16,773,646, respectively. At September 30, 2013, HTG 15,000,000 of this amount (92.5%) represents a deposit made to customs authorities for the clearance of the building parts. At September 30, 2014 this amount had been reclassified by management as a receivable. The remaining balance consists of deposits made on a contractual basis for rent, leasing of vehicles and telephone plans. NOTE H DEFERRED TAXES Deferred taxes (asset) represent the future tax benefits of tax losses incurred during 2010 through 2014, which can be carried forward for five years. Deferred taxes were calculated using the tax rates in effect on September 30, 2014 and The balance of deferred taxes, net of valuation adjustments, at September 30, 2014 and 2013 was HTG 20,490,000 and HTG 23,400,000, respectively calculated as shown in the table below. Deferred Tax Asset Balance as of September 30, 2012 HTG 23,946,259 Tax benefit for 2013 losses 10,649,819 Expiration of 2008 carryforward (9,202,008) Valuation adjustment (1,994,070) Total tax provision (546,259) Balance as of September 30, ,400,000 Tax benefit for 2014 losses 20,524,499 Expiration of 2009 carryforward (4,355,650) Valuation adjustment (19,078,849) Total tax provision (2,910,000) Balance as of September 30, 2014 HTG 20,490,000 As illustrated in the table shown above, HTG 4,355,650 of the carryforward from 2009 expired during the year ended September 30, 2014 and HTG 9,202,008 of the carryforward from 2008 expired during the year ended September 30, Valuation adjustments were applied to the losses used to calculate deferred taxes at September 30, 2014 and 2013 in the amounts of HTG 19,078,849 and HTG 1,994,071, respectively, to reflect the possibility that the Co mpany may not be able to use all of the carryforward before it e xpires. Financial projections prepared by management support management s opinion that the Company will achieve profitability and positive equity and will therefore realize the loss carryover as adjusted by the carryforward expiration and valuation adjustment. The deferred tax asset, if unused, is scheduled to expire as follows: September 30, 2015 HTG - September 30, ,241,051 September 30, ,248,949 September 30, September 30, Total amount expected to be realized HTG 20,490,000 18

21 NOTE H DEFERRED TAXES (CONTINUED) FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS No income tax was paid by the Company during the years ended September 30, 2014 and 2013 due to net losses. The provisions for 2014 and 2013 income tax represent the increase in the expected future benefits provided by losses carried forward. The company s tax returns are subject to regulatory review for a period of five years after filing. The provision for income taxes differs from that computed by applying statutory rates to income before income tax expense for the years ended September 30, 2014 and 2013 these amounts were HTG 274,393 (expense) and HTG 657,410 (expense), respectively, due to income from unrealized gains (losses) on securities. NOTE I LAND SETTLEMENT During the year ended December 31, 2011, the Company reached a settlement of an ongoing lawsuit regarding a debt owed by a Haitian company. In exchange for the debt that was owed, the debtor transferred title to a parcel of land to the Company. The debtor has been granted the right to use the land for five years and has the option to repurchase the property at any time within those five years. The Company has valued the piece of land at the amount that the debtor will be required to pay for repurchase of the land. The repurchase price was calculated considering principal and interest of the original debt as well as all fees paid in relation to the lawsuit. At September 30, 2014 and 2013 the land is included in other assets on the balance sheet at a value of HTG 16,583,003 and HTG 15,747,445, respectively (the converted amounts using the September 30, 2014 and 2013 exchange rates were USD 364,000 and USD 360,000, respectively). An appraisal (Evaluation Fonciere) dated November 12, 2010 by Pierre Gousse Jr of CF Construction reported that the fair market value of the property at that date was HTG 17,409,390. NOTE J DEPOSITS Deposits consisted of the following: September 30, 2014 September 30, 2013 Savings deposits in Haitian gourdes HTG 639,998,985 HTG 650,503,652 Savings deposits in U.S. dollars 462,416, ,248,816 Time deposits in Haitian gourdes 23,104,837 38,877,084 Time deposits in U.S. dollars 8,747,306 6,937,187 Total HTG 1,134,267,402 HTG 1,189,566,739 On November 1, 2013 the Organization adjusted the interest rates on the Savings and Time deposits. Savings deposits bear interest at rates between one tenth of one percent and one half of one percent for the year ended September 30, 2014 compared to one half of one percent and one and one half percent for the year ended September 30, Time deposits bear interest rates between one fifteenth of one percent to four tenths of one percent for the year ended September 30, 2014 compared to rates between one and five percent for the year ended September 30, Accounts with average quarterly balances below HTG 100 and USD 20 are not paid interest. The aggregate amount of time deposit accounts in denominations of USD 100,000 (HTG 4,555,770 and HTG 4,374,290 at the September 30, 2014 and 2013 exchange rates, respectively) was HTG 5,000,000 at September 30, 2014 and The deposits shown above include deposits held for related parties in the amounts of HTG 20,216,551 and HTG 26,711,297 for the years ended September 30, 2014 and 2013, respectively. 19

22 NOTE K OTHER CURRENT LIABILITIES FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS Other current liabilities consisted of the following at September 30, 2014 and 2013: September 30, 2014 September 30, 2013 Accounts payable HTG 62,767,967 HTG 49,354,211 Interest payable 2,076,445 2,420,063 Accrued expenses 3,560,511 4,180,087 Pass-through payroll 776,291 21,644,592 Total HTG 69,181,214 HTG 77,598,953 Accounts payable at September 30, 2014 and 2013 were HTG 62,767,967 and HTG 49,354,211, respectively. At September 30, 2014, HTG 8,260,160 of the accounts payable balance related to employee salaries and other employee related payables and HTG 3,699,510 related to payables to the Foundation. The remaining balance related to other miscellaneous payables. At September 30, 2013, HTG 22,251,396 of the accounts payable balance related to employee salaries and other employee related payables and HTG 11,810,917 related to payables to the Foundation. The remaining balance related to other miscellaneous payables. NOTE L PASS-THROUGH PAYROLL During the nine months ended September 30, 2012, the Company entered into two agreements with third parties to distribute payroll related to philanthropic projects. As of September 30, 2014 and 2013 HTG 776,291 and HTG 3,897,791 had been received by the Company but not yet distributed. For September 30, 2013, the remaining balance of the pass-through payroll of HTG 17,746,801 is special payroll for Food For Peace. NOTE M LONG TERM SUBORDINATED NOTES PAYABLE Notes payable consists of ten notes due to individuals and organizations who are also shareholders of Fonkoze S.A. The notes bore no interest until September 1, 2007, when interest began accruing at 5% per annum. Interest is paid semi-annually in U.S. Dollars. Principal payments in U.S. Dollars began on August 31, Maturities are as follows: September 30, 2014 September 30, 2013 Fiscal Year Ending Fiscal Year Ending September 30, 2015 HTG 3,271,043 September 30, 2014 HTG 3,140,740 September 30, ,371,236 September 30, ,140,740 September 30, ,384,954 September 30, ,039,945 September 30, ,369 September 30, September 30, ,685 September 30, Total HTG 13,175,287 Total HTG 14,321,425 The notes are subordinate and junior to all other creditors. 20

23 NOTE N NOTES PAYABLE OTHER FONKOZE S.A. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS Notes payable at September 30, 2014 and 2013 consisted of the following: Note payable to Grameen Foundation bearing 9% fixed interest due and payable March 3, HTG - HTG 504,650 Note payable to Grameen Foundation bearing 9% fixed interest due and payable October 4, , ,763 Note payable to MEDA bearing 9.66% fixed interest per annum due and payable September 30, ,467,863 Note payable to Oikocredit bearing 13.5% fixed interest per annum for the first 6 months and a variable interest rate thereafter due and payable August 2, ,750,000 6,250,000 Note payable to Inter-American Investment Corporation bearing 9.75% fixed interest. This is a revolving credit facility with a maturity date of February 24, Note payable to Whole Planet Foundation bearing 0.0% fixed interest due and payable April 30, Note payable to Whole Planet Foundation bearing 0.0% fixed interest due and payable April 30, Notes payable to Fonkoze USA with interest at fixed annual percentage rates from 0% to 4% and matu rities from October 1, 2014 to August 14, ,669,099 10,489,600 10,940, ,090,184 21,506,265 10,489,600 10,940,050 79,940,149 Notes payable to investors living abroad with interest at fixed annual percentage rates from 0% to 1% and m aturities between October 1, 2014 and July 16, ,519,285 8,097,139 Note payable to Global Partnership Social Investment Fund bearing 8.50% fixed interest per annum and maturity date of October 9, ,500,965 10,935,725 TOTAL NOTES PAYABLE HTG 186,212,065 HTG 154,637,204 The maturities of the notes payable are as follows as of September 30, 2014 and 2013: September 30, 2014 September 30, 2013 Fiscal Year Ending Fiscal Year Ending September 30, 2015 HTG 86,792,940 September 30, 2014 HTG 64,861,465 September 30, ,061,093 September 30, ,351,638 September 30, ,993,984 September 30, ,933,322 September 30, ,913,767 September 30, ,668,131 September 30, ,450,281 September 30, ,087,635 Thereafter - Thereafter 2,735,013 Total HTG 186,212,065 Total HTG 154,637,204 At September 30, 2014, USD 1,546,301 (HTG 70,445,917 at the September 30, 2014 exchange rate) remained available to the Company on the line of credit with Inter-American Investment Corporation (IIC). At September 30, 2013, USD 1,508,348 (HTG 65,979,535 at the September 30, 2013 exchange rate) remained available to the Company on the line. Following the draw end date for the line of credit, which was February 24, 2014, the IIC prepared an amortization schedule and determined a maturity date of February 24, The notes payable to the Grameen Foundation and Oikocredit are payable in Haitian gourdes at the exchange rate when the loan was first disbursed. The remainder of the notes payable are payable in U.S. dollars. 21

24 NOTES TO FINANCIAL STATEMENTS NOTE O COMMITMENTS The Company leases office space on a l ong-term basis. Some leases are payable in U.S. dollars while others are payable in Haitian Gourdes. Future obligations under these leases as of September 30, 2014 are as follows: Payable in USD Payable in HTG Year 2015 $ 153,600 HTG 1,276, , , , , , , , , ,333 Total $ 407,213 HTG 4,453,250 Rent expense for the years ended September 30, 2014 and 2013 was HTG 12,102,592 and HTG 14,859,253, respectively. NOTE P CAPITAL STRUCTURE The capital structure of the Company consists of common stock with voting rights and non-cumulative, participating preferred stock with no voting rights. Par value of the stock is HTG 25. At September 30, 2014 and 2013, total shares authorized consisted of 8,048,067 common shares and 2,500,000 preferred shares. At September 30, 2014 total shares outstanding consisted of 5,286,171 common shares and 1,780,191 preferred shares. At September 30, 2013 total shares outstanding consisted of 5,086,017 common shares and 1,580,191 preferred shares. Preferred shares receive five percent more of any declared dividends than common shares. The Company issues new stock through sale and conversion of debt to equity. During the year ended September 30, 2014, the Company issued 200,154 shares of common stock and 200,000 shares of preferred stock at USD 1.25 per share. Sale of common stock accounted for 200,154 of the new shares and conversion of debt to equity resulted in zero shares of common stock issued. All 200,000 new shares of preferred stock were issued through sale. Du ring the year ended September 30, 2013, the Company issued 1,844,400 shares of common stock and 215,600 shares of preferred stock at USD 1.25 per share. Sale of common stock accounted for 1,844,400 of the new shares and conversion of debt to equity resulted in zero shares of common stock issued. All 215,600 new shares of preferred stock were issued through sale. NOTE Q DISASTER RISK MITIGATION FACILITY In 2011, the Company introduced a catastrophe insurance product in partnership with Micro insurance Catastrophe Risk Organization (MiCRO), a specialized (re)insurance company founded by the Company with other investors. The product combined a commercially reinsured parametric insurance policy and an insurance product for the Company s borrowers, Kore W, with additional insurance coverage for the basis risk or differential between the coverage provided by the parametric payout and the actual benefits payable to borrowers under the Kore W program criteria. The Company paid premiums to MiCRO for parametric insurance coverage based on the total value of its loan portfolio. The Company received parametric payouts through MiCRO based on predetermined triggers for rain, wind and seismic activity. The C ompany collected Kore W insurance premiums from borrowers. When events occurred that led to catastrophe insurance claims by borrowers, the Company s Kore W team determined which clients received payouts based on pre-determined criteria. When claims submitted by clients in the Kore W program were in excess of the parametric payouts through MiCRO, the Company submitted a basis risk claim to MiCRO. MiCRO reimbursed the Company based on the insurance contract. 22